Stock market dance can linger even after music stops

Weekly Review: MAAD, CPFL indicator analysis

Cumulative Volume (CV). CV in both easily kept pace with pricing up and down until the fall of 2007. Thereafter CV moved sharply lower, especially in the S&P. But despite price recovery since March 2009, CV in both the S&P 500 and the Dow 30 has recovered barely 50% of the CV losses incurred during the 2008/2009 bear. That upside failure is a suggestion that while pricing has moved higher, the volume fuel that has been driving the market upward has become weaker and weaker.

Daily S & P 500 Emini Futures contract with Cumulative Volume (CV)

emini, volume

Weekly S & P 500 Emini Futures contract with Cumulative Volume (CV)

weekly, cumulative, emini

Some would suggest that so long as prices are rising, volume is irrelevant. To a large extent that’s true since investors buy price and not volume. But volume as reflected in CV tends to measure market health. “Is the patient likely to keep breathing?” Put another way, is a river with diminishing water flow likely to sustain river traffic?

Index Daily / Weekly / Monthly Stops Weekly Monthly
 

1/28

1/29

1/30

1/31

2/1

2/1

2/28

S&P 500 Index

SELL 1467.39

SELL 1470.52

SELL 1474.79

SELL 1478.29

SELL 1482.17

SELL 1393.45

SELL 1330.62

Dow Jones Industrials

SELL 13465.24

SELL 13501.33

SELL 13548.19

SELL 13600.05

SELL 13552.08

SELL 12901.57

SELL 12570.95

NASDAQ Composite

SELL 3108.12

SELL 3111.70

SELL 3119.72

SELL 3121.81

SELL 3125.47

SELL 2936.97

SELL 2862.45

Value Line Index

SELL 3284.42

SELL 3293.98

SELL 3305.88

SELL 3316.66

SELL 3328.72

SELL 3030.39

SELL 2817.27

Note: Stop levels, a function of the extant trend, are based on the trailing moving average price channels for the Highs or the Lows of an index. Whether or not a specific index is suggesting a “Buy” or Sell” is determined by whether or not index prices are above or below the current channel Stop levels. Stop levels should only be used as an entry or exit guide and in conjunction with other market entry and exit strategies.

Admittedly, given the proximity of index pricing to the highs of October 2007, the margin for error is diminishing. If the S&P 500 and the Dow 30 rally above closing levels of 1565.15 (S&P) and 14164.53 (Dow 30) made on October 9, 2007 with follow through above new all-time highs made on an intraday basis October 11, 2007 at 1576.09 and 14198.10, respectively, then a potential Head and Shoulders top scenario would be tossed to the historical winds. But given the fact that all cycles, short, intermediate, and long-term, are now into “Overbought” territory, just as all of our key indicators have failed to make new highs on the long-term cycle, a miss could put an end to the bull trend begun in March 2009.

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